At the start of this year, banks and other financial firms in Singapore had to begin establishing the tax residency status of all their account holders.
It may seem like yet another form of disclosure that banks have to make, but it has a major purpose, being part of a multi-year international effort to clamp down on tax evasion.
Financial institutions have to do this as Singapore is now adhering to what is known as the "Common Reporting Standard". The key word here is "reporting" - under this international standard, countries that have agreements with one another will soon start automatically exchanging financial data for tax purposes.
PwC Singapore tax partner Brendan Egan noted that financial institutions have to get their clients to fill in forms on their tax residency.
They will then have to report to the Inland Revenue Authority of Singapore the financial account information of account holders who are tax residents of jurisdictions with which Singapore has Competent Authority Agreements (CAAs).
Singapore has so far signed CAAs with Australia, Britain and Japan, among others. This means, for example, that once the CAA takes effect, Singapore will automatically share with Australia the financial account information of accounts in Singapore held by Australian tax residents. Australia, in turn, will do the same with Singapore for the financial account information of accounts in Australia held by Singapore tax residents.
So, if someone were to consider parking his money in an overseas account to evade taxes or hide illicit funds, he would likely be deterred, knowing that if he were to open an account in, say, Singapore, his data would automatically be reported to his home country, or the country to which he owes taxes.
Not only does this international effort benefit those jurisdictions that are strapped for cash and need all the tax revenues they can get, but it is also a win for Singapore as this ensures that the funds parked here are clean.